Financial analysts with the Aite Group
say a complete dismantling of Fannie Mae
and Freddie Mac
would thrust regulated banks and credit unions into a world where finding capital to lend is virtually impossible, completely revamping the mortgage finance landscape.
"For most banks and credit unions, a world without Fannie and Freddie would thrust responsibility for securitizing mortgages back to the originator," Aite Group analysts said in their latest research note.
Aite describes the fundamental shift that would come with such a change as one that would essentially end the Baby Boomer era – where consumers had more financing options – to one where there are few alternatives with Fannie and Freddie no longer securitizing mortgages. To date, the $11 trillion U.S. residential mortgage-backed securities market is still shaky, the research paper notes.
"Let’s for a moment imagine Fannie and Freddie gone," the Aite Group asked rhetorically. "There are approximately 16,000 banks and credit unions in the United States. Where do they find the capital to lend to their customers the funds to buy homes? Does each institution have the capacity to (profitably) keep on its shelf all the mortgages its customers require and simultaneously maintain compliance with all capital risk mandates? It is unlikely."
The Aite Group says alternatives to Fannie and Freddie simply do not scale and with many of the large mortgage companies gone, credit unions and certain banks would have no alternatives in the secondary market.
"Uncertainty concerning the survival of the two leading outlets for residential real-estate loans for federally regulated institutions—the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac)—seems to have quashed hope for a thriving home market in the near term," the study concluded.
Write to: Kerri Panchuk